If you’re buying a car, it’s important to understand all the costs involved — including the finance charges — to make sure you’re getting the best deal. Finance charges on auto loans are the total cost of borrowing, including interest, fees, and any additional costs imposed by the lender over the life of the loan.
Read on to learn more about auto loan finance charges, how to calculate what you might pay, and ways to help minimize the cost.
Key Points
• Finance charges on car loans include interest and fees, calculated based on the loan amount, APR, and loan length.
• Credit scores and the type of car influence these charges, with higher credit scores helping to secure lower interest rates.
• Used cars typically have higher finance charges compared to new cars.
• Minimizing finance charges can involve shopping for low interest rates, refinancing, and making early payments.
• Understanding the loan terms and conditions helps in managing and reducing overall finance charges.
What Are Finance Charges on Auto Loans?
A finance charge refers to an amount you pay to borrow money. When you get an auto loan, a finance charge is what you pay to borrow money to purchase the car.
Finance charges include interest and other types of fees that lenders impose. For example, the lender might charge a paperwork fee or an origination fee, or they might simply combine those types of fees and call it a finance charge. The charges might be separate from the interest on the loan, or they might be rolled into the cost of the loan. It largely depends on the lender and the terms of the loan.
In some cases, you may be able to minimize fees, or you may see offers to avoid origination fees, say. Read the fine print carefully to make sure you understand just what you are paying for and how.
Average Finance Charges for Auto Loans
The primary finance charge for most auto loans is interest. The interest rate you’ll be charged will generally be based on two factors:
• Credit score: Those with higher credit scores often receive the lowest interest rates.
• New or used car: Lenders impose higher interest rates on loans for used cars than they do on loans for new cars. Used car loans are seen as riskier since cars can depreciate rapidly and there may be condition issues with a pre-owned vehicle.
Here are some specifics according to Experian® as of the third quarter of 2024:
• For those with the highest credit scores (known as super prime, or 781-850), a new car loan has an average interest rate of 5.08%, and a used car loan has an average interest rate of 7.41%.
• For those with the lowest credit scores (deep subprime, or 300-500), the average rate for a new car loan is 15.43% and 21.55% for a used car loan.
It’s important to note that you won’t know your actual rate until you apply for a car loan, but these figures can give you a general idea.
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Calculating Finance Charges on a Car Loan
It can be helpful to calculate the total finance charges on a car loan to get an idea of what you might have to pay. There’s a simple formula you can use to do this. First, gather all the information about the loan, including the loan amount, the annual percentage rate or APR, the length of the loan in months, and your daily balance.
Once you have the information, you can plug it into this finance charge formula:
To calculate the finance charge, multiply the loan amount by the APR. Then, multiply the length of the loan in months by the loan’s average daily balance. Divide the first number by the second. Take that amount and add any additional fees you’re being charged to it. The resulting number is your total finance charge.
Can You Avoid Finance Charges on a Car Loan?
Unless you can pay for a car outright, there’s no way to completely avoid a finance charge on car loan. However, car manufacturers occasionally offer 0% APR financing as a promotion on specific models. Just be aware that these offers will often be available as an option vs. other discounts you might get.
While it’s difficult to avoid a financing charge altogether, there are ways to minimize the costs. First, and perhaps most obviously, do shop around for the lowest interest rate possible, which can help save you money. Your first offer isn’t necessarily the best you’ll find.
Another way to minimize financing charges is to refinance your car loan. When you refinance with a lower APR, you’ll pay less in interest if you get a lower rate or shorten your term. In addition, you can always make extra car payments or pay off your loan early, if possible, in order to minimize the interest charges.
Paying Finance Charges on a Car Loan
Some car loan finance charges are paid at the time of purchase, while others are a part of your monthly payment. The specifics depend on your lender, your loan, and the terms of the loan. When you receive your car loan statement, it will spell out the finance charges as well as the principal amount of the loan.
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Do You Pay Finance Charges If You Are Refinancing a Car Loan?
When you refinance a car loan, you are paying off an existing loan and taking out another. And like all car loans, there is a cost to refinance a car. Some lenders charge fees, such as transaction and transfer fees, for refinancing.
However, you may be able to refinance for a lower interest rate and save money in interest overall. Find out what potential fees you might have to pay to see if refinancing at a lower interest rate is worth it for you.
The Takeaway
A finance charge on a car loan is the cost of borrowing money to buy the car. You’ll have to pay financing charges whether you’re taking out a new car loan or refinancing an existing car loan. By understanding what these charges are and how they are calculated, as well as shopping around for the best rate, you may be able to minimize these costs.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
FAQ
What are the finance charges on car loans?
The term finance charge is used to describe any cost you pay to borrow money. With a car loan, finance charges refer to the cost you pay for borrowing money to purchase the car. Finance charges include interest, fees, and any additional costs imposed by the lender over the life of the loan.
What is the average finance charge for an auto loan?
The average finance charge depends on the borrower’s credit score and whether the car is new or used. Lenders impose higher interest rates on loans for used cars than they do for new cars. For people with the highest credit scores, a car loan for a new car has an average rate of 11.38% as of May 2025. For those with the lowest credit scores, however, the average APR for a new car loan will be about 18.93%.
Are there any finance charges on refinanced car loans?
Yes, the finance charges that you’ll pay on a refinanced car loan are similar to those you pay when you first purchase a car. In addition, some lenders charge transaction and transfer fees, among others, for refinancing. You may be able to refinance for a lower interest rate and save money over the life of the loan. Just add up the costs to make sure refinancing is worth it for you.
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